[Congressional Record Volume 160, Number 91 (Thursday, June 12, 2014)]
[House]
[Pages H5358-H5361]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE FEDERAL RESERVE
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 3, 2013, the Chair recognizes the gentleman from Georgia (Mr.
Woodall) for 30 minutes.
Mr. WOODALL. Mr. Speaker, I am here to talk about the Federal
Reserve, and if you want a real stemwinder of a conversation here on
the House floor, Mr. Speaker, I recommend the Federal Reserve to you.
It is nonstop laughs and giggles and interesting information.
I can't get started without referencing my friend from the District
of Columbia who just spoke, and she spoke with such passion. I have the
great pleasure of serving on the House Rules Committee, Mr. Speaker. As
you know, it meets right behind the wall up there. It is the only
committee that meets in the Capitol, and the Delegate from the District
of Columbia is often there, speaking just as passionately on behalf of
her constituents.
It is hard because, as she spoke with absolute certainty about the
role that the District of Columbia plays, the Constitution speaks with
similar certainty, and that is what makes it a difficult conversation
to have.
The Constitution set up this governing district and gave those
responsibilities to the U.S. Congress to administer.
Now, the Home Rule Act--and if folks haven't looked at the Home Rule
Act, it is a fascinating read. Like so many things that we do in this
Chamber, it was done for all the right reasons and has its fair set of
unintended surprises along the way.
Here is what the Constitution says in article I, section 8, and it
says, in part, this:
Responsibilities of the Congress, to exercise exclusive
legislation in all cases whatsoever, over such district, not
exceeding 10 miles square, as may, by cession of particular
States--you will remember, Virginia and Maryland both ceded
real estate in order to create the District of Columbia, we
used Maryland's half, we gave back Virginia's half--and the
acceptance of Congress, become the seat of the Government of
the United States, and to exercise like authority over all
places purchased by the consent of the legislature of the
State in which the same shall be.
Exclusive jurisdiction granted to the Congress by the Constitution,
Mr. Speaker, but then we passed a statute that gave certain home rule
rights and responsibilities away.
Now, that statute, of course, is secondary to the Constitution. The
Constitution is controlling. The statute is secondary, and that statute
grants the rights and the privileges that the Delegate was referencing.
That happens so often here, Mr. Speaker, that we have constitutional
responsibilities, and then we have statutory authorities, and
sometimes, those come into conflict.
I happen to have one of those on my mind tonight, and it is the
Federal Reserve Act, Mr. Speaker. If you are ever looking for a good
read, can't quite get to sleep in the evening, let me suggest the
Federal Reserve Act to you.
It is not a fascinating read, but it is an incredibly important read,
and it says, in part, this--this is the Federal Reserve Act, Mr.
Speaker. You can't see it from where you are, but it says this:
The Board of Governors of the Federal Reserve System and
the Federal Open Market Committee shall maintain long-run
growth of the monetary and credit aggregates commensurate
with the economy's long-run potential to increase production,
so as----and this is the important part----so as to promote
effectively the goals of maximum employment, stable prices,
and moderate long-term interest rates.
The authority to control the Nation's money supply lies here in
Congress. The authority to control interest rates, as they are related
to the money supply, lies here in Congress.
Mr. Speaker, the Congress delegated that to the Federal Reserve Board
through the Federal Reserve Act, and the Federal Reserve Board's
mission, again, is to:
Promote effectively the goals of maximum employment, stable
prices, and moderate long-term interest rates.
Now, Mr. Speaker, we have had this conversation before. If you have
ever been in a high school economics class, you are thinking, hey, wait
a minute; can I really promote full employment and interest rate
moderation with the same language? Don't I lower interest rates in
order to get maximum employment? Don't these things sometimes run
countercyclically to one other?
It is a very difficult mandate that we had given the Federal Reserve.
I want to talk about how they have handled that because, Mr. Speaker,
the frustration I hear from folks back home is:
[[Page H5359]]
You are the United States Congress, why can't you get things done? Why
won't you move together? Why won't you be effective? In what? In
growing jobs and expanding the economy.
Now, we have done some things here of which I am very proud--
collaborative things, bipartisan things, bicameral things--that have
absolutely taken us a few steps in the right direction. I wish we were
moving more rapidly in the right direction. I am finding it harder to
get agreement here than I expected, 3 years ago, when I came to this
body.
The Federal Reserve then has taken it upon themselves, through this
Federal Reserve Act mandate that I read earlier, to try to improve,
stabilize--insert your favorable word here. They are not villains. They
are out to help try to improve our economy.
What I have here, Mr. Speaker--again, you can't see it. I have the
Federal Reserve's balance sheet. Now, what is important about the
balance sheet, Mr. Speaker--I go back to 2007, and what you see is the
Federal Reserve's balance sheet is relatively stable, just over about
$800 billion.
Now, again, if you are working in a high school economics class--this
is not the millions with an m. This is billions with a b. $800 billion
is the typical size of the balance sheet at the Federal Reserve, but we
enter these financial crises in 2008, 2009, 2010, the size of the
Federal Reserve balance sheet doubled, and then it quadrupled. It
doubled, and then it quadrupled.
Mr. Speaker, in the period of about 3 months, the Federal Reserve's
balance sheet went from $800 billion up above $2.4 trillion.
I want you to think about that. The budget of the entire United
States of America is about $3.5 trillion. It goes up. It goes down. It
is about $3.5 trillion. In the span of about 3 months, the Federal
Reserve--created by Congress, empowered by Congress--expanded its
balance sheet without any additional approval of Congress by about $1.7
trillion.
The Federal Reserve expanded its balance sheet in 3 months by twice
as much as the entire Federal Government spent in that same period of
time without a single vote, without a single conversation in this
Chamber, without a bit of consent from the Speaker, from the majority
leader of the Senate, from the White House, $1.7 trillion.
Now, you can't see the colors on the chart, Mr. Speaker. The balance
sheet, of course, has a variety of components to it. Traditional
security holdings that the Federal Reserve has always had, those
actually are a smaller part of those holdings today.
What we are looking at is, in this beige area, it is long-term bond
purchases. It is Federal Government debt purchases.
It doesn't take a long conversation to begin to get concerned when an
entity created by the Federal Government is actually buying all of the
Federal Government debt--or at least a substantial portion of it.
What does that mean to our long-term economic growth?
{time} 1500
Again, if the Federal Reserve was enacted to promote effectively the
goals of maximum employment, stable prices, and moderate long-term
interest rates, then how is doubling the balance sheet, tripling the
balance sheet--now we are just almost at $4 trillion. That is beyond
quadrupling the balance sheet. That is coming close to quintupling the
balance sheet. What does this mean about the long-term economic
security of America?
Again, Mr. Speaker, this is something that happens--$4 trillion--
without a single vote in this Chamber, without a single vote across the
Capitol in the Senate, without a single signature by the President, and
without any consent by the American people whatsoever. Four trillion
dollars in balance sheet expansion with not a single bit of consent of
the governed.
Well, why is that important, Mr. Speaker? It is because this doesn't
happen by accident. This happens in response to a crisis. Now, this
Chamber responds to crises, and the administration responds to crises.
But the Federal Reserve responded to an economic crisis. It tried to do
what it could do to help the economy grow.
Well, I happen to have in my hand, Mr. Speaker, the testimony from
then-Federal Reserve Chairman Ben Bernanke, February 9, 2011. Now, Mr.
Speaker, you won't remember February 9, 2011 here in this Chamber, but
that was my first month on the job. I had just gotten sworn in, and
they had just given me the voting card for the Seventh District of
Georgia. I am sitting in the House Budget Committee, and here comes
Federal Reserve Chairman Ben Bernanke to talk to me--just a freshman
here in Congress--about economic policy and how it is we are going to
grow the American economy.
Well, that might have been my first month on the job, but it wasn't
Chairman Paul Ryan's first month on the job. He was a veteran. He was
our chairman at that time, as he is today. He was a veteran of the
budget process, and he asked Dr. Bernanke: I am looking at the
expansion of the balance sheet. The chairman said: I am looking at
QE2--quantitative easing 2 at the time it was called--and I am trying
to figure out what this is going to do to the economy long term.
I want to quote from Chairman Bernanke because it is important. The
clarity is important. Chairman Paul Ryan was asking whether or not all
of this work by the Fed was going to monetize our debt, whether
inflation was going to come and we were going to solve our debt
problems by just inflating everybody's money right out of existence.
And Chairman Bernanke said:
No, sir. No, sir. Monetization would involve a permanent
increase in the money supply to basically pay the
government's bills through money creation.
That is not what we are doing, he says.
He says this:
What we are doing here is a temporary measure which will be
reversed so that at the end of this process, the money supply
will be normalized, the amount of the Fed's balance sheet
will be normalized, and there will be no permanent increase,
either in the Fed's balance sheet, or in inflation.
In February, 2011, Chairman Ben Bernanke says that the Fed's balance
sheet will be normalized. The Fed balance sheet will return to a normal
level because what was happening at the Fed at that time was a
temporary measure.
Again, Mr. Speaker, you won't be able to read these numbers, but I
want to help you find February 2011 on this chart. February 2011 is
right here. Right here.
It was at this point where you see a mild dip, Mr. Speaker, where
Chairman Ben Bernanke said that the balance sheet--which has risen not
to twice its normal levels but to three times its normal levels--this
is a temporary measure, and the balance sheet will begin to return to
normal. Mr. Speaker, we are 3 years later, and far from returning to
normal, the size of the balance sheet has doubled.
Temporary measure. Don't worry about it. We are on our way, going to
return to normal. But rather than return to normal, the size of the
balance sheet has again doubled. Not one vote in this Chamber. Not one
vote across the Capitol in the Senate. Not one signature by the United
States President. Not one bit of consent from the 300 million Americans
who are governed. Balance sheet doubled.
What does that mean? Why is this important? Mr. Speaker, I know what
you are saying. I promised you a humdinger of Federal Reserve
conversation this afternoon. I told you the Federal Reserve was an
exciting topic, and you are thinking, Rob, you are talking balance
sheets. Balance sheets don't inspire me at all. Well, okay, what about
interest rates, Mr. Speaker? Do you remember the interest rates of the
1970s? Because I do. Do you remember when getting a 12 percent mortgage
was getting a pretty good deal? Because I do.
Folks don't realize that today. If you were born after the 1970s, you
have been in a time of relatively moderate interest rates. This, what I
have here is 10-year interest rates, Mr. Speaker, the U.S. Treasury 10-
year rates. And I go back to about 1960 and we track these rates out.
Back in the 1960s, they were about 5 percent, 4 percent. Go right on up
there into the end of the Carter years, the beginning of the Reagan
years, hit 16 percent on a 10-year Treasury coming out of the Federal
Government, Mr. Speaker. And then after those Carter, Reagan years, you
begin to see those numbers decline. And you go all the way out now and
you are looking at yields under 2 percent.
[[Page H5360]]
Mr. Speaker, these are interest rates on money the Federal Government
borrows. Now, again, I hate to dwell too much on my high school
economics class lessons, but you know how interest works, right? If
there is a lot of something and you want to borrow it, you pay a little
bit of interest. But if there is not much of something and you want to
borrow it, you have to pay more interest. Or, conversely, if there is a
lot of debt, in order to get folks to buy that debt, you have to pay
higher interest rates. But if there is only a little debt, to get folks
to buy that debt, you pay lower rates.
Well, we have more debt in this country than we have ever had before,
Mr. Speaker. Never before in the history of this country have we had as
much debt as we have now. Never before have we rolled that debt up
above the size of the GDP as we have now. Never before have we borrowed
as much from the next generation of Americans sacrificing their future
prosperity for our current benefit. Never before. So you would think
that we would be paying the highest rates in American history.
Let's go to the chart. No. No. The highest rates in American history
were back in the late 1970s, early 1980s, Mr. Speaker. What we are
paying are the lowest interest rates in American history. Now, I want
you to sort through that with me, Mr. Speaker. We have more debt than
we have ever had before. We are borrowing more from the world than we
have ever tried to borrow from the world before, and yet interest rates
on our borrowing are going down instead of up--going down instead of
up.
The debt today in America, Mr. Speaker, is four times higher than it
was in the late 1990s. Yet, the interest service on the debt today is
the same because we are borrowing at these low teaser rates.
What enables these low teaser rates? Among other things, when the
Federal Reserve is willing to buy those bonds, long-term Treasury
purchases. You see them right here. They didn't even exist prior to
2009. Now those purchases have grown to over $1 trillion. It turns out
that you can get lower interest rates on your money if you are willing
to buy it from yourself and pay yourself back. You can charge less.
But what does that mean to long-term economic security in this
country, Mr. Speaker? Because that sounds a little bit like a dangerous
Ponzi scheme to me. Maybe there is something aberrant about the 10-year
rates.
So, I want to look here, Mr. Speaker. Again, you can't see my colors,
but I charted those 10-year yields from 2009 out until today, and I
have coordinated them with the implementation of this Federal Reserve
policy called quantitative easing. The red squares, Mr. Speaker,
indicate when quantitative easing stops. The green squares indicate
when quantitative easing starts. Quantitative begins 2009, QE2, QE1
ends.
QE2 begins, QE2 ends. QE3 begins, QE3 not yet quite ended. And you
will see that the interest rates directly correspond--directly
correspond--to when these Federal Reserve programs begin and end.
Dramatic manipulation of interest rates. Again, not a single vote in
this Chamber, not a single vote across the Capitol in the Senate, not a
single signature by the President, and not a single bit of consent from
the hundreds of millions of Americans who are governed. Interest rates
being manipulated.
It is not just the 10-year rates, Mr. Speaker; it is the 30-year
rates, too. Again, this is long-term money. If you borrow almost $18
trillion--as we have borrowed here in this country--you are not going
to pay that overnight. That is a long-term promise. So you would expect
that these long-term rates would be getting higher and higher and
higher and higher because the risk is greater and greater and greater.
Again, we threaten America's fiscal security by borrowing from
tomorrow's generations to pay for today's benefits. It is fair to
question the morality of that, Mr. Speaker.
If you started your small business on the day that Jesus Christ was
born, and you lost $1 million on your first day in business, but you
worked hard, you worked 7 days a week, Mr. Speaker, from the day Jesus
Christ was born until today, and you lost $1 million every single day,
you would have to work for another 730 years, Mr. Speaker, to lose your
first trillion dollars--your first trillion dollars. Another 700 years,
$1 million a day, 7 days a week to lose your first trillion dollars.
We have borrowed from tomorrow's children, from tomorrow's
generation, from tomorrow's prosperity almost $18 trillion. Yet
interest rates are going down.
Why is that? It is because, number one, we are the best of all the
worst economies on the planet. Let's be clear. Of all the disastrous
economies on the planet, ours is the least disastrous. And so folks
still want to come and buy American debt. Thank goodness. Forbid the
thought that one of these other economies is going to improve one of
these days, we are going to have a harder time finding debt service.
How much more of our own money can the Federal Reserve buy? Most debt
in American history. Highest percent of GDP in American history.
Interest rates going down.
Well, Mr. Speaker, maybe this all sounds like a pretty good scheme,
then, if I can borrow as much money as I want to beyond historical
norms but I can keep interest rates as low as I want to below
historical norms. Maybe what this means is I found the secret mechanism
for making money--I can just create prosperity for the American people
out of thin air.
Well, it turns out that is not quite true. In fact, it is not even
close. What I have here, Mr. Speaker, is the dollar index. The dollar
index is an index of the value of the American dollar around the globe.
Because a dollar is meaningless. What is meaningful is how much a
dollar can purchase. If I can only purchase one Coca-Cola, Mr. Speaker,
with a dollar, then that dollar is worth one Coca-Cola. If I can
purchase 12 Cokes with a dollar, then that dollar is worth a whole lot
more to me. It is still just a dollar. We don't care about the dollar.
We care about how much it will purchase. That is what this chart shows.
Again, Mr. Speaker, QE1 goes into effect, QE1 ends. QE2 goes into
effect. QE2 is announced, it goes into effect, QE2 ends. QE3 is
announced, it goes into effect, it goes out over the horizon. This is
what I want you to see, Mr. Speaker: QE1 goes into effect, and in the
midst of the QE1 operation, before it begins to wind down, the value of
a dollar has dropped by 15 percent.
I want you to think about that. If we tried to pass a bill in this
Chamber that looked at everything that everybody had in this entire
great country of ours and taxed it all at 15 percent to bring that in
immediately, what do you think the chances are we would pass that? What
do you think the chances are we would get one vote on that? The Senate
wouldn't pass it. The President wouldn't sign it. But, yet, when we
devalue our dollar, we devalue everything that everybody has by the
exact same percentage.
In the case of QE1, 15 percent reduction before that program decided
to wind down. Come over here to QE2. It is another 5 percent reduction
in the value of the dollar, Mr. Speaker.
Here is the thing. We can print as much money as we want to. It is
our right as a sovereign nation. But the more you print, the less
valuable it becomes. That is what Chairman Ryan was asking when he was
asking Chairman Bernanke if he planned to monetize the debt. He was
asking: Do you plan to print so much money that the money itself
becomes less valuable? If you owe $1 trillion, do you plan to print so
much money that you pay back the trillion dollars with these newly
printed dollars that are worth only a fraction of what the original
borrowed money was worth?
QE1, dollar collapses 15 percent. QE2, dollar down 5 percent. For
every action, there is a reaction, Mr. Speaker. The Federal Reserve has
these mandates: interest rates, inflation, full employment. There are
only so many levers they can pull. And, in fact, the answer is that
they have run out of levers, Mr. Speaker. That is why you see the
balance sheet looking the way it is today. Look at all these lines that
never existed before in the history of the country. Look at these
lines. Long-term Treasury purchases. That is new. That is something
that has just been implemented in the last 5 years. Folks ran out of
tools.
Look at this line, Mr. Speaker. Federal agency debt. Mortgage-backed
securities. Whoever thought of the Federal Reserve purchasing mortgage-
[[Page H5361]]
backed securities--by the billions? Monthly, by the billions never
existed before in the history of this country--an expanding part of the
balance sheet today.
{time} 1515
Mr. Speaker, there are only so many tools that the Federal Reserve
has to use in order to try to keep this economy afloat, each one of
these tools never approved by the Congress, never approved by the
President, never approved by the American people; and yet, the Federal
Reserve's balance sheet is now larger than the entire budget of the
United States of America. Isn't it time we have this conversation?
Chairman Ryan says: Isn't this monetizing the debt?
Chairman Ben Bernanke says: No, this is a temporary measure. Balance
sheet levels will return to level.
When were they going to return to normal? Well, that comment was in
February of 2011. Since that time, we have seen another 100 percent
increase in the size of that balance sheet.
Mr. Speaker, I am not saying that the Federal Reserve is wrong. I
have some grave concerns. We have asked the question: How is it you are
going to unwind these giant balance sheets?
The answer is: I don't know. We have never seen it done in the entire
history of the United States of America, but don't worry about it, it
is going to be fine.
It is a frightening thing. Here we are, in the longest recession of
my lifetime, the most stagnant growth coming out of a recession, that
we have ever seen coming out of a recession in the history of this
country, the Federal Reserve pulling all of the levers it knows how to
pull, Congress pulling all of the levers it knows how to pull, the
balance sheet getting larger, unwinding it getting harder.
I want you to open up The Wall Street Journal the next time you have
a chance, Mr. Speaker, and keep an eye on this dollar index. I can't
say it too strongly, that if I tried to pass a 5 percent tax on
everything that everybody has, everybody earns, everybody owns, I would
be laughed right out of this Chamber; yet through monetary policy, we
could devalue all of those exact things by that exact amount, and
nobody would even know.
There would be no record of debate here in this Chamber. There would
be no record of a vote in the Senate. There would be no bill that the
President signs or vetoes. It would happen with the stroke of a pen
with the Federal Reserve Governors, and America would be none the
wiser. Every day, you can find it. Track that dollar index, Mr.
Speaker.
What happens when you start to devalue money, Mr. Speaker, is you
start running into inflation, and we see that. I talked earlier about
what happened in those Carter years before President Reagan came in.
We were looking at annual inflation way up above 12 percent--back
after World War II, again, printing a lot of money, borrowing a lot of
money, economic turmoil, even though people were at work, maximum
employment, but inflation rate was up about 18 percent, but here we go.
This chart is from 1946 out to 2014.
Folks ask: Rob, why are you so worried? Isn't inflation kind of low
today?
Inflation is incredibly low today. Think about that. We have pumped
all of this new money into the economy. We have all this additional
liquidity. We have all this cash parked on the sidelines, and yet
inflation is incredibly low, but ticking up.
The question isn't what is inflation today, Mr. Speaker. The question
is: When inflation starts to move, will we be able to control it?
We have spent so many of our tools trying to stimulate the economy,
and again, we can question whether or not that was the intent of the
Federal Reserve Act when it was passed, to have all of these new levers
created and pulled in a time of economic crisis, but they have been
created, and they have been pulled; and so when inflation comes, will
we still have any tools in the toolbox to control it?
This is not just my fear, Mr. Speaker. You can go this week to The
Wall Street Journal. This is June 9:
Inflation is rising in the United States and could become a
serious problem sooner than the Federal Reserve and many
others now recognize.
Going to the end of that article:
The key to the future is how the Fed will respond when
prices steadily rise above its 2 percent target rate, while
the overall unemployment rate is still relatively high. A
misinterpretation of labor-market slack and a failure to
create a positive real Federal funds rate could put the
economy on a path of rapidly rising inflation.
In the old days, the Federal Reserve, with all of the power it has
and all of the levers it has to pull, all of the tools in its toolbox,
focused on inflation and interest rates and employment; but with all of
those levers having been pulled, with inflation on the rise, with
unemployment stubbornly high, and with interest rates stubbornly low,
what levers are left to pull when the next crisis comes?
Mr. Speaker, it is not a question of if the next crisis comes, it is
a question of when the next crisis comes, and when we do these
extraordinary things to solve today's crisis, we put America at risk
for tomorrow's crisis.
I do not fault those folks who are trying to make things better, but
I do fault us as an institution if we allow the prosperity of tomorrow
to be traded away to treat the ills of today.
Mr. Speaker, the Federal Reserve Act, commit it to your reading. We
will be down here again because this is an issue that this Chamber must
exercise our article I controls.
I yield back the balance of my time.
____________________